A Review of the Nigerian Energy Industry

Transocean down after Brazil’s car wash report

25 September 2015, News Wires – Investment bank Cowen & Company sees shares in Transocean sliding further after the rig giant’s name was dragged into the huge probe tackling historical corruption at Brazilian state giant Petrobras.

petrobrasAnalysts at Cowen have set a share price target of $12 at Transocean, down from a Thursday close of $13.01, following a report detailing testimony given by one state witness in the Operation Car Wash investigation last month that an alleged agent of the contractor made improper payments in lieu of landing a rig-operating deal.

Bloomberg, citing court documents in Brazil, reported late on Thursday that former Petrobras executive Eduardo Musa testified late last month that he was offered alleged payments linked to Transocean winning the tender to operate the Petrobras 10000 ultra-deepwater drillship – a contract the rig giant later secured.

Musa said he met with a man in late 2007 who said he was an assistant to Nestor Cervero, a former head of Petrobras’ international division – who last month was sentenced to more than 12 years in prison for corruption and money laundering, and at the time was Musa’s boss.

This assistant, who was not named in the testimony, allegedly offered Musa part payment in return for Transocean winning a contract to operate the drillship. Musa then said he met with Carlos Moura, who he alleged presented himself as a Transocean agent, Bloomberg reported. They discussed the tender and the contractor went on to submit the lowest bid and seal the rig deal, with Musa claiming to start receiving payments from this alleged agent from 2012 on foot of the charter.

No part of the testimony indicated that there was any direct contact between Musa and any Transocean employee, apart from this alleged agent, the report continued.

The company told Bloomberg: “Transocean has a long-standing commitment to and upholds the highest standards for corporate ethics and compliance. Our employees – and everyone conducting business on our behalf – are required to adhere to our high standards for integrity, honesty, financial discipline and legal and regulatory compliance.”

In a market note on Friday, Cowen noted that no formal accusations had been made against Transocean and that no wrongdoing had been admitted.

“When we spoke with the company, Transocean stated that it has no knowledge of any wrongdoing on its part or on the part of any agents it hired, and that it is currently investigating the matter,” Cowen wrote.

“We note that none of the persons mentioned in Musa’s testimony actually worked for Transocean, and Caros Moura only claimed to be an agent working for the company.”

Shares in Transocean fell by as much as 9% following the Bloomberg report, but recovered to sit down almost 5% on Thursday.

However, Cowen say fit to put a price target of $12 on its stock, below Thursday’s closing price.

“Any attempt by Petrobras to cancel contracts it has with Transocean in the wake of Musa’s testimony would of course be viewed as an incremental negative on Transocean shares,” Cowen continued.

“We estimate that the Petrobras 10000 currently represents just around 3% of Transocean’s backlog.

“Additionally, even if we were to assume that Petrobras canceled the contracts of all five Transocean rigs that it currently has under contract, its backlog would be reduced by less than 7%.

“While the loss of backlog would certainly be a negative for the company, we think further downside would be minimal; we expect three of the five rigs to be cold stacked after their current contracts anyway.”


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